Spend and Save

A start-up company that allows people to save for retirement when they make consumer purchases.

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To get START Inc. out of the gate, Larry Andreini and Lew Burger have to persuade consumers they can save money by spending

Seated at a desk in the back corner of a deserted warehouse, serenaded by the clanking of conveyor belts and the stop-and-go screech of forklifts, Larry Andreini began crafting a plan for a business that, if successful, would affect the spending patterns of 50 million consumers. It's a big idea that's taken a toll on its founder: his car has been repossessed, his marriage has been destroyed, he's faced a rumor that his trusted partner planned to steal his company away. But six years and $5 million later, the undaunted and ever-upbeat 30-year-old is ready to launch his company and is preparing for explosive growth.

His company, START (an acronym for Save Today and Retire Tomorrow) Inc., in Herndon, Va., offers U.S. consumers the almost illogical proposition of spending and saving at the same time. The way it works: Consumers sign up with START and are issued an identification card. Armed with the card, a member buys from an array of stores, catalogs, and grocery stores, which START calls cosponsors. Every time a consumer buys from a cosponsor, up to 6% of his or her purchases are swept into an interest-bearing, tax-deferred annuity.

Right now the list of cosponsors is short but includes blue-ribbon names like USTravel, MCI, Club Med, Hertz, GE Capital Small Fleet, NationsBank, and Spiegel. In the next year Andreini plans to add 100 new names to the list, including well-known department stores, grocery chains, and even gas stations. The cost to the enrollee? A onetime $25 fee. Andreini calculates that a couple, age 33, could expect to build up a retirement nest egg of $213,000 by age 65 if they spend $16,000 a year with START cosponsors and draw 3% interest. Andreini says, "It's a painless way to save."

And one that speaks to a power-packed buying group -- baby boomers -- and focuses on one of their most wrenching concerns -- the future. More than 70% of surveyed consumers aged 20 to 49 say their number one concern is saving for the future, reports a Yankelovich Clancy Schulman study commissioned by START. Anxiety over savings outstrips concerns about job security and the current recession. "American consumers are struggling with the save-versus-spend dilemma," Andreini contends. Some lack the discipline, others feel overwhelmed by expenses, and others just don't know how to save. "Our premise is to say to retailers, Why not take the same amount you're spending to bombard people with advertising and instead earn customers' loyalty by helping them save for retirement?"

It's a premise that jibes with what many sophisticated marketing executives are thinking. More and more of them are facing the problem of product parity, meaning that less and less differentiates the hotels, the long-distance carriers, and the department stores of today. Add to that an overall decline in demand, shrinking profit margins, and customers who are less impressed by mass-market advertising. The result? A fundamental shift away from an all-out battle for new customers and toward an emphasis on "loyalty marketing" -- or retaining established buyers.

Today companies large and small alike consider loyalty programs the weapon of the 1990s. Not only is it cheaper to preach to the converted, but they are likely to be bigger-ticket buyers. It's a move that promises robust payoffs, too. Companies can boost profits by almost 100% by retaining just 5% more of their customers, according to a recent Harvard Business Review article. Andreini is betting that START is a cut above traditional loyalty programs, though. Unlike those focusing on a single product -- like frequent-flier programs or Sears's Best Customer plan -- START offers a wide array of products and services concentrated where consumers spend the bulk of their dollars: car payments, travel, clothing, and telephone services.

With a more diverse platter of choices, says Andreini, everyone wins. START will win because more services will mean more consumers, and more consumers will mean more revenues. Cosponsors will win because through START they'll gain access to a gold mine of qualified prospects from their fellow cosponsors, and earn customer loyalty through their contributions. And with so many services tied into the START network, consumers should be pleased by how easily they can build up savings.

After graduating from Notre Dame, in 1984, Andreini went to work for his father at Andreini Insurance. He later moved to a vice-president's position at another insurance company. It was there he met some clients who had an eye-catching concept that allowed people to save and spend at the same time. "What they laid out was the fundamentals of START," says Andreini. Captivated by the idea, he left his job to help the struggling start-up, called Tradevest.

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